Banks mis-sold 90 per cent of products to small businesses, says FSA
The Financial Services Authority (FSA) has confirmed that four major UK banks will start a full review into the mis-selling of products to small businesses, after it found that nine out of 10 sales did not meet regulatory requirements.
Under its own pilot review into the mis-selling of interest rate hedging products (IRHPs) to small businesses, the FSA confirmed that a ‘significant’ number were mis-sold and are likely to result in compensation being given to the customer.
Barclays, HSBC, Lloyds and Royal Bank of Scotland have been ordered to conduct a review of all IRHP sales to small businesses that ‘were unlikely to understand the risks associated with those products.’
The FSA found that over 90 per cent of the 173 sales it analysed were non-compliant. It estimates that around 40,000 ‘swap’ products were sold to small businesses over the last decade.
Martin Wheatley, CEO designate of the Financial Conduct Authority (soon to replace the FSA), said: “This marks significant progress in our review of these products. We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses.”
“Small businesses will now see the result of the review as the banks look at their individual cases. Where redress is due, businesses will be put back into the position they should have been without the mis-sale. But it is important to remember that this review is firmly focused on the particular circumstances of each sale. These will determine whether there were failings in the sales process and, if so, whether redress is due.”
Responding to the FSA’s announcement, the Federation of Small Businesses (FSB) said it welcomed the broadening of criteria of those affected so that firms will not be locked out of the redress scheme. However, it is concerned that payments had not been automatically suspended.
National Chairman of the FSB John Walker said: “Now the pressure is on the banks to contact its customers. They must do so quickly and decisively to draw a line under this matter and bring the situation to a close.”
The FSA’s review into a further six banks will be completed in the next couple of weeks.